Less Than Truckload (LTL)
Products are moved from point to point by a number of different modes of transport: air, rail, water, and truck. In the US, the movement of goods by truck offers shippers infinite flexibility due at a relatively low cost. Truck transportation can move large items faster than rail as the shipment is not dependent on the railroad's timetable. The general freight carriers in the US offer two types of service, Full Truckload (FTL) service or Less Than Truckload (LTL).
While the FTL carrier moves full containers or trucks of one product from one customer, the LTL carrier moves goods from many different customers on one truck. The LTL carrier offers customers a more cost-effective method of shipping goods than the FTL operator.
How LTL Works
Within a local area, the LTL freight operator has a number of vehicles which collect shipments from their customers. After finishing the daily collection, the shipments are taken to a terminal where the vehicles are unloaded. Each shipment is weighed and rated which allows customer bills to be processed. The individual shipment is loaded onto an outbound vehicle which contains shipments from other customers bound for the same geographic area. The outbound shipments are trucked to appropriate regional terminals, where they are unloaded. The shipments are sorted and placed on local vehicles for delivery. Each individual shipment is handled a number of times from the time it is picked up from the customer until it reaches its final delivery location.
Advantages of LTL Carriers
The primary advantage of using an LTL carrier is cost. The price of sending a shipment using an LTL rather than an FTL carrier is significantly lower. The LTL carrier competes with parcel carriers, who generally will not accept shipments of more than 70 to 100 pounds in weight.
This competition gives usually results in LTL carriers offering lower rates per pound than parcel carriers.
History of LTL Carriers
The US government started regulating the trucking industry in 1935 under the guidance of the Interstate Commerce Commission (ICC). The Motor Carrier Act of 1935 required new truckers to seek a "certificate of public convenience and necessity" from the ICC. The act required motor carriers to file their tariffs with the ICC 30 days before they became effective. The tariffs were then available to be viewed by any interested party. The tariff could then be subject to a challenge by another carrier or railroad which could lead to a suspension of the tariff until an investigation could be carried out.
In 1948, despite a veto from President Truman, the Congress allowed carriers to fix prices and allow them to be exempt from any antitrust legislation. For the next 30 years, the competition was virtually extinguished as the ICC denied applications from new carriers. The industry began to change in the early 1970’s when first the Nixon, then the Ford and Carter administrations implemented a number of acts to reduce price fixing and collective vendor pricing. The final part of the deregulation was the Motor Carrier Act of 1980.
The effect of the new law resulted in intense price competition and lower profit margins, with thousands of new low-cost, non-union carriers entering the market. Between 1977 and 1982, the average LTL rate fell by up to 20%. The trucking industry changed after deregulation. The number of carriers doubled between 1980 and 1990, with over 40,000 carriers in the US. Union membership fell sharply between 1980 and 1985, dropping from 60% to 28%.
Changes in the law did open the industry up to the competition but now the number of carriers is significantly lower than the years after deregulation. The LTL market is estimated at approximately $30 Billion, but currently, there is overcapacity, which has could be as high as 15%. This, combined with the slowing economy, will inevitably lead to more carriers seeking Chapter 11 protection leading to job losses in the union and non-union sectors.